Germany to Rack Up €200 Bln in Debt Borrowing to Offset Raging Energy Crisis
© AP Photo / Michael Sohn
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Amid spiking energy prices, “industrial superpower” Germany announced a massive government aid programme offering “tailor-made solutions” to get it through the energy crisis as multiple government ministers had warned of “popular uprisings” should costs skyrocket out of control.
The German government is preparing to accumulate €200 billion ($195 billion) in fresh debt to offset the bitter impact of the raging energy crisis, Bloomberg reported.
A gas price cap has been announced by German Chancellor Olaf Scholz, to shield households and companies from skyrocketing prices. Under the proposed economic safeguard measure, the state will set a limit for gas prices and pay the difference between that cap and what gas importers pay on the world market.
"The German government will do everything in its power to bring [energy] prices down. We are now putting up a large defensive umbrella ... which we will endow with €200 billion," Chancellor Olaf Scholz announced at a press conference in Berlin on September 28.
#Doppelwumms mit 200 Mrd. Euro Abwehrschirm: Wir senken die Energiepreise mit einer Strom- und #Gaspreisbremse und verzichten auf die #Gasumlage. Das machen wir für Rentner, Familien, Arbeitnehmerinnen, große Unternehmen genauso wie kleinere Betriebe. Niemand steht allein.
— Bundeskanzler Olaf Scholz (@Bundeskanzler) September 29, 2022
The details of the gas price cap will be worked out by an expert group, with recommendations expected to be presented in mid-October.
Previously, the government had planned to compensate suppliers with a levy on consumers' gas bills, but amid a backlash over the increased energy bills, the scheme it entailed was scrapped.
Berlin intends to utilize its COVID-19 pandemic-era Economic Stabilization Fund (WSF) that officially expired in the summer and is not part of the regular federal budget to finance fixing the lid on the gas price. This will help dodge breaking Germany’s ‘debt brake’ - the constitutional limit to debt uptake.
“The economic stabilization fund is a crisis instrument that has already proven its worth in the Corona crisis, as the rescue of Lufthansa proved,” said coalition government budget spokesperson, Dennis Rohde, of the Social Democratic Party (SPD).
Finance Minister Christian Lindner said the measure should not fuel further inflation, and insisted that the fund would not entail further regular borrowing.
“We want to clearly separate crisis spending from our regular budget management. We want to send a very clear signal to the capital markets: Even if we now use such a defensive umbrella, Germany will stick to its stability-oriented, sustainability-oriented fiscal policy,” Lindner said.
The government is also considering using a windfall tax on profits of energy companies that don’t use gas to generate power.
2 September 2022, 20:26 GMT
‘Wrong Approach’
The German government’s plan to cap gas prices was criticized by the Federal Audit Court on Thursday.
In emailed comments to POLITICO, The President of Germany's Federal Audit Court, Kay Scheller, expressed disapproval of the strategy to place a massive amount of fresh debt outside the regular budget.
"When money is drawn down from special funds, the state has to borrow. Ultimately, special funds, even if they are not called that, are federal debt," Scheller was cited as warning.
Lion Hirth, a professor of energy policy at the Hertie School in Berlin, also denounced the gas-price cap as “exactly the wrong approach.”
“Industry would reverse all its efforts at saving and burn more gas again, storage facilities would run empty and politicians would ultimately have to forcibly close down companies on a large scale. Nobody can want that,” Hirth told Bloomberg by email.
Inflation is a major concern in Germany, where the rate is currently at around 7.9%. According to official estimates, the rate of inflation is expected to be +10.0% in September 2022 - the highest rate in 70 years.
Energy prices have been soaring amid Brussels’ push to “phase out” or dramatically cut down on Russian oil, gas, and coal deliveries to “punish” Moscow for its special military operation in Ukraine. After the beginning of Russia's operation on February 24, 2022, several packages of sanctions against Moscow were adopted by the European Union, which Russian President Vladimir Putin characterized as “suicidal” for fueling energy costs.
Many EU governments have since been forced to resort to contingency measures. The German government has taken measures to fill gas storage facilities ahead of winter, and in order to slash gas consumption, greenlighted hard coal-fired power plants to operate again. Nevertheless, Germany’s network regulator, the Bundesnetzagentur, said gas consumption was well above average, increasing by 14.5% compared with the mean for 2018-2021, according to data cited by Bloomberg. Klaus Mueller, the agency’s president, called the figures “very sobering” on September 28, adding that without considerable savings, also in the private sector, “it will be difficult to avoid a gas shortage this winter.”
Der private #Gasverbrauch lag letzte (kalten) Woche deutlich über dem Verbrauch der Vorjahre. Ohne erhebliche Einsparungen auch im privaten Bereich wird es schwer, eine #Gasmangellage im Winter zu vermeiden.
— Klaus Müller (@Klaus_Mueller) September 29, 2022
Dringende Bitte: Gas sparen! @bnetza @BMWK https://t.co/O5wDfYwY56 pic.twitter.com/pUMgyjllrG
